Sustaining good times: CEA Nageswaran for more gap between NPA cycles | Banking
Sustaining good times: CEA Nageswaran for more gap between NPA cycles | Banking
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New Delhi: Chief Economic Advisor V. Anantha Nageswaran addresses a press conference after tabling of the Economic Survey 2023-24 in Parliament by Union Finance Minister Nirmala Sitharaman, in New Delhi, Monday, July 22, 2024. (Photo: PTI)
India’s chief economic adviser (CEA) Anantha Nageswaran has urged the banking sector to take lessons from the previous financial downturn and focus on extending the duration between two non-performing asset (NPA) cycles.
He came down heavily on banks and insurance companies for ‘rampant’ misselling to achieve short-term profits.
“…as corporate profits are booming, the net interest margin of Indian banks has risen to a multi-year high. It is a good thing. Profitable banks lend more. To sustain the good times, it is important not to forget the lessons of the last financial cycle downturn. The banking industry must aim to lengthen the gap between two NPA cycles,” the CEA said in the Economic Survey.
Asset quality of Indian banks has improved considerably over the years, led by improved borrower selection, more effective debt recovery and heightened debt awareness among large borrowers. This has led to gross non-performing assets (NPAs) at the system level falling to a 12-year low of 2.8 per cent from a peak of 11.2 per cent in FY18.
The improvement in scheduled commercial banks’ asset quality has been broad based. The Survey highlighted that gross NPA ratio of the agriculture sector remains high at 6.5 per cent at the end of March 2024. But it has recorded persistent improvement during H2 of FY24.
Gross NPA ratio in the personal loans segment improved across all categories. Asset quality got a boost across all significant sub-sectors within the industrial sector, barring vehicles and transport equipment, it added.
Meanwhile, the CEA has said the financial sector should resist the temptation to pursue short-term profits at the expense of the customer.
“Product misspelling is too rampant to be dismissed as an aberration of a few overenthusiastic sales personnel. The same can be said of the insurance industry as well. Prompt and reasonable settlement of insurance claims and a lower rejection rate are necessary to increase insurance penetration,” he said.
He added that acknowledgement of misselling and misrepresentation and compensating for consequential losses are a good business practice enjoined upon stockbroking, fund management, banking and insurance firms.
According to the Survey, over 50 per cent of the complaints against life insurers were about unfair business practices (if the Life Insurance Corporation of India is excluded), a euphemism for misselling.
Further, 66 per cent of the complaints against general insurers were about claims, including delayed and denied settlements.
“Misselling remains a significant issue within the insurance sector, driven by certain entities from both insurers and the distribution ecosystem. They aim for top-line growth with a short-sighted vision,” said Narendra Bharindwal, vice-president, Insurance Brokers Association of India (IBAI).
“This problem is particularly prevalent in the retail health and life insurance segments. However, the industry has made strides to address this. They include implementing call recording during sales pitches to ensure that customers are fully informed about the products and their terms,” Bharindwal added.
First Published: Jul 22 2024 | 8:00 PM IST
